Donations Costs and Corporate Social Responsibility

Donations are costs which incurred voluntarily and without any coercion. Under Indonesian tax regulations, donations costs are not allowed to be deducted when calculating taxable income. This is regulated in the Income Tax Law in Article 9 paragraph (1) letter g which reads:

“Gifts, aid or donations, and inheritances as referred to in Article 4 paragraph (3) subparagraph a and subparagraph b, except donations as referred to in Article 6 paragraph (1) subparagraph i to subparagraph m and zakat received by an Amil Zakat Board or other amil zakat institutions established or approved by the government or compulsory religious donation for the followers of religions acknowledged by the Government, received by religious institutions established and approved by the Government, which are stipulated by or based on a Government Regulation.”

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In the terms of law, contributions, donations, and charitable activities are divided into several types in order to classify them in regulations, such as tax regulations. When we want to do charity work, it is better if we understand the types of donations that are included and which are not included as income tax objects, because it turns out that not all donations are subject to tax. Article 6 paragraph (1) of the Income Tax Law has stated the types of donations that can be deducted for determining the amount of taxable income, including donations for national disaster management, donations for research and development in Indonesia, donations for educational facilities, and donations for sports development.

Donations Costs and Corporate Social Responsibility
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Based on the explanation in the regulations above, it known that donations are expenses which are examples of the CSR or Corporate Social Responsibility costs. In running their business, business owners are no longer focus on profit only, but are required to care about society and the environment. They set aside a portion of their profits to realize an ethical business through Corporate Social Responsibility (CSR), which is a form of corporate moral responsibility. In other words, donations costs are an example of the implementation of CSR by companies as a form of social responsibility aimed at social or the surrounding environment.

In line with the Income Tax Law Article 6 paragraph (1), Government Regulation Number 93 of 2010 states several CSR costs that can be deducted from gross income in calculating taxable income for taxpayers including:

  1. Donations for research and development carried out in the territory of the Republic of Indonesia submitted through research and development institutions
  2. Donations for national disaster relief
  3. Donations for sports coaching aimed at fostering, developing and coordinating a/group of branch/type of sports organizations
  4. Social infrastructure development costs incurred to build facilities and infrastructure for the public interest and are non-profit in nature
  5. Donations for educational facilities through educational institutions

Furthermore, there are conditions for donations to be used as deductions stipulated in Article 2 Government Regulation 93/2010, as read below:

  1. The Taxpayer has net fiscal income based on the Annual Income Tax Return for the previous Tax Year;
  2. giving donations and/or costs does not cause a loss in the Tax Year the contribution is given;
  3. supported by valid evidence; and
  4. institutions that receive donations and/or fees have a Taxpayer Identification Number, except for entities that are exempted from being tax subjects as regulated in the Law on Income Tax.

In addition, Minister of Finance Regulation Number 90/PMK.03/2020 concerning Aid or Contributions, as well as Granted Assets That Are Excluded As Income Tax Objects stipulates objects that are excluded as income tax objects in Article 2 paragraph (3), that grants, assistance, or donations will exempt from tax objects if given to:

  • blood relatives in a straight line of one degree;
  • religious institutions;
  • education institutions;
  • social institutions including foundations;
  • cooperative; or
  • individuals who run micro and small businesses

Then Minister of Finance Regulation Number 76/PMK.03/2011 concerning Procedures for Recording and Reporting Donations further explains that the amount of donations for 1 (one) year is limited to not exceeding 5% (five percent) of net income the previous tax year.

Written by Sabil Ahsani, Tax Compliance & Audit, TaxPrime.

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